Polyester yarnmakers set for higher profit margin on crude price recovery

Recovery in crude oil prices is set to benefit synthetic yarn manufacturers because of their ability to pass on the increase to consumers, that is, fabric manufacturers.

After falling to $57.77 a barrel on October 2, crude oil prices bounced back to trade almost at three-month high of $67.50 a barrel on Friday.

Since synthetic yarn is a derivative of crude oil, manufacturers have been able to raise their product prices. Synthetic yarn has become costlier by 5-7 per cent in the last two months along with a jump in cotton yarn prices.

Changing consumer preferences, like the needs of sportswear firms, have resulted in the increasing demand for synthetic yarn in India.

Looking at the vast potential, Indian synthetic yarn and fabric manufacturers have also started exploring overseas markets for exports.

“Consumer preferences have changed over the last few years. The demand for synthetic yarn and fabric has increased. As against 60:40 cotton-to-synthetic yarn consumption in India two years ago, the ratio has now changed to 55:45. This is going to continue further and catch up with the global standard of 40:60 of cotton-to-synthetic,” said a senior official with a leading polyester maker.

Looking at the enormous potential, Filatex India has raised capacity at its polymer production unit in Dahej from 150 tonnes per day (TPD) through debottlenecking to 170 TPD.

“We are glad to report a steady performance despite the turbulent economic conditions and slowdown across industries in the country. We have maintained a high capacity utilisation and increased production during the challenging period,” said Madhusudhan Bhageria, chairman and managing director, Filatex India said.

Going ahead, demand of polyester fibres is expected to remain firm, led by healthy demand expected in the domestic apparel industry.

India’s better demographics, expected increase in per capita income, increasing urbanisation and expanding organised market would be the key drivers for raising domestic demand for apparels.

Moreover, the low interest rate regime, improving liquidity condition of non-banking financial companies (NBFCs) and expected government and private spending would help the domestic apparel sector see better demand.

Apart from that, cotton yarn prices have jumped to trade at Rs 185-190 a kg of the benchmark 30-count variety. The 40-count variety of cotton yarn prices have also risen to quote between Rs 210 and Rs 215 a kg now. 
 
“Indian cotton is outpriced by Rs 2,000 a tonne in the world market. For India to export cotton, either the world price has to rise or the domestic price will have to decline. Thus, India’s cotton exports are currently under tremendous pressure,” said Arun Sakseria, a leading cotton trader and exporter.

Cotton prices have declined by nearly 15 per cent since September this year to trade the medium staple at Rs 5,255 a quintal in Gondal (Rajkot) market.

 
Apart from that cotton yarn prices have jumped to trade currently at Rs 185-190 a kg of the benchmark 30 count variety. The 40 count variety of cotton yarn prices have risen similarly to quote between Rs 210-215 a kg now.
 
“Indian cotton is outpriced by Rs 2000 a tonne in the world market. For India to export cotton, either the world price has to rise or the domestic price should have to decline. Thus, India’s cotton exports are currently under tremendous pressure;” said Arun Sakseria, a leading cotton trader and exporter.
 
Cotton prices have declined by nearly 15 per cent since September this year to trade the medium staple at Rs 5255 a quintal in Gondal (Rajkot) market.

 
A recent release from Reliance Industries states that domestic polyester markets grew by 9 per cent y-o-y. India’s filament demand grew 6 per cent y-o-y ahead of seasonal demand and improved buying appetite due to low filament prices.

Meanwhile, overall profitability of Indian polyester yarn manufacturers would continue to see better scenario, considering the factors like continuous rise in polyester yarns demand from textiles players, benefits to India from US-China trade war and declining cost competitiveness of China.